Financial History 25th Anniversary Special Edition (104, Fall 2012) | Page 43

Improvement cartel. Standard Oil’s shipments on the Pennsylvania Railroad were
sabotaged. Death threats prompted Rockefeller and Flagler to each hire 24-hour
armed guards.
Three days later, the Petroleum Producers Union agreed to cut production
by starting no new wells for 60 days. They
also agreed to shut down on Sundays and
refused to sell oil to anyone associated
with the South Improvement Company.
The independents boycotted railroads
and threatened to build their own lines.
The Petroleum Producer’s Union formed
a committee to ask the Pennsylvania legislature to revoke the South Improvement
Company’s charter. Another committee
requested a federal investigation.
The 60-day boycott had caused the oil
business to come to a screeching halt.
Plants were closed and railroads lost revenue. Pennsylvania railroad workers went
on strike, and there were reports of sporadic violence.
Within about two months, the state of
Pennsylvania revoked the South Improvement Company charter. The independent
refiners resumed production on April 15.
Standard Oil may have lost the battle,
but it won the war. The South Improvement Company tactic showed Flagler that
he could continue making acquisitions
and control all aspects of the oil refinery
business.
“Although South Improvement Company had technically failed, it had well
served Standard Oil’s purpose,” said
Edward N. Akin, in his book, Flagler:
Rockefeller Partner and Florida Baron.
From 1872 through the end of the
decade, Flagler continued to cut deals with
the railroads by guaranteeing delivery of a
specific amount of oil for a rebate on the
price. He also was instrumental in merging large independent refiners in Philadelphia, Pittsburgh and New York, as well as
companies that had access to oil pipelines.
In 1877 and 1878, Flagler, amid a threat
to ship oil exclusively by pipeline, cut
shipping price deals with the Pennsylvania, New York Central, Erie and Baltimore
& Ohio Railroads. By 1878, however, all
the railroads had to pay Standard Oil a
rebate of 20-35 cents a barrel for any oil
shipped by non-Standard Oil refiners.
By 1882, Standard Oil had become so
large that it had to change from a corporation to a trust, facilitating its ability to
operate in different states. The trust was

capitalized for $70 million. Two years
later, the company moved its headquarters to 26 Broadway, in New York City.
By the end of the 1880s, Flagler’s dealing
resulted in Standard Oil controlling 90%
of the US refined oil market.1
Unfortunately, the Standard Oil party
did not last. In March 1882, the Ohio
Attorney General won an antitrust lawsuit
against Standard Oil, forcing the trust to
dissolve. Standard Oil was split into 20
companies in different states. In reality, this
had no impact on the business bottom line.
But in 1911, the US Supreme Court ruled
that Standard Oil had violated the Sherman
Antitrust Act. The company was broken up
into 34 new companies. Today, those companies consist of Conoco, ExxonMobil, BP
and Chevron.
Although Standard Oil was portrayed
in the media as a ruthless, capitalistic
company, the monopoly benefited the
public by lowering costs. Based on 2009
dollars, the price of oil dropped between
1872 and 1897 to $30 per barrel from $80
per barrel.
Investors also benefited. By 1905, Standard Oil had paid out about $50 million
in dividends on earnings of nearly $100
million.
Flagler might have been a tough businessman, but he also enjoyed an active
private life. He was an avid reader, and
he liked a good cigar and a good drink on
occasion. He kept in regular contact with
a group of close friends and relatives and
was reputed to be very generous to struggling relatives and the downtrodden.
“He was a modest and private individual,” said Susan Swiatosz, archivist at the
Flagler Museum in Palm Beach, FL. “His
letters show that he had a gentle sense
of humor; however, if the occasion warranted, he would spea